SOCIALIST ECONOMY

SOCIALIST ECONOMY

The concept of socialist economy was propounded by Karl Marx and Frederic Engels in their work ‘The Communist Manifesto’ published in 1848. In this economy, the material means of production i.e. factories, capital, mines etc. are owned by the whole community represented by the State. All members are entitled to get benefit from the fruits of such socialised planned production on the basis of equal rights. A socialist economy is also called as “Command Economy” or a “Centrally Planned Economy”. Here, the resources are allocated according to the commands of a central planning authority and therefore, market forces have no role in the allocation of resources. Under a socialist economy, production and distribution of goods are aimed at maximizing the welfare of the community as a whole.Some important characteristics of this economy are:

(i) Collective Ownership: There is collective ownership of all means of production except small farms, workshops and trading firms which may remain in private hands. As a result of social ownership, profit- motive and self- interest are not the driving forces of economic activity as it is in the case of a market economy. The resources are used to achieve certain socio-economic objectives.

(ii) Economic planning: There is a Central Planning Authority to set and accomplish socio- economic goals; that is why it is called a centrally planned economy. The major economic decisions, such as what to produce, when and how much to produce, etc., are taken by the central planning authority.

(iii) Absence of Consumer Choice: Freedom from hunger is guaranteed, but consumers’ sovereignty gets restricted by selective production of goods. The range of choice is limited by planned production. However, within that range, an individual is free to choose what he likes most.
The right to work is guaranteed, but the choice of occupation gets restricted because these are determined by the central planning authority on the basis of certain socio-economic goals before the nation.

(iv) Relatively Equal Income Distribution: A relative equality of income is an important feature of Socialism. Among other things, diuerences in income and wealth are narrowed down by lack of opportunities to accumulate private capital. Educational and other facilities are enjoyed more or less equally; thus the basic causes of inequalities are removed.

(v) Minimum role of Price Mechanism or Market forces: Price mechanism exists in a socialist economy; but it has only a secondary role, e.g., to secure the disposal of accumulated stocks. Since allocation of productive resources is done according to a predetermined plan, the price mechanism as such does not influence these decisions. In the absence of the profit motive, price mechanism loses its predominant role in economic decisions. The prices prevailing under socialism are ‘administered prices’ which are set by the central planning authority on the basis of socio-economic objectives.

(vi) Absence of Competition: Since the state is the sole entrepreneur, there is absence of competition under socialism.

The erstwhile U.S.S.R. is an example of socialist economy. In today’s world there is no country which is purely socialist. North Korea, the world’s most totalitarian state, is another prominent example of a socialist economy. Other examples include China and Cuba.